Tag Archives: royalties

Copyright company filing is a “mini” IPO aimed at monetizing future music royalties

A business designed to acquire and monetize royalty streams “of the world’s biggest artists,” Royalty Flow, went public last week with a “mini” IPO, or registration under Regulation A+ crowdfunding initiative. 

A new type of PIPCO (public IP company), Royalty Flow hopes that under the 2012 JumpStart Our Business Start-up (JOBS) Act, passed by the Obama administration and known as “Regulation A+,” will enable it to raise between $11 million and $50 million. If successful, the capital will allow the company to purchase a portion of the income stream derived from Eminem’s 1999-2013 catalog and pay investors dividends in return.

Depending on how much money is raised, Royalty Flow will buy either 15 percent or 25 percent of an Eminem income stream based on royalties paid to FBT Productions, which often works with the performer.

With the recent upsurge in streaming revenues from services like Pandora, Spotify and Apple Music, some music industry observers believe that royalties generated under copyrights have a bright future. But streaming services have only just begun to pay recording artists and producers, and lucrative licensing deals reminiscent of returns on retail CDs are a long way off for most.  See “Music royalties – a siren song for niche investors seeking higher yield” in the August 23 IP CloseUp.

The Royalty Exchange website cites a Goldman Sachs analyst that paid streaming revenues will grow by 833% by 2030 (see graph above).

Reminiscent of “Bowie” Bonds

The Royalty Flow business model is reminiscent of the “Bowie” Bonds securitization that took place in 1997. In that arrangement Bowie’s company, the copyright holder, did not sell the assets, but a portion of the cash flow they generated over a ten-year term. Bowie did well on the $55 million deal. Investors, depending on when they bought and sold, did not.

“What Bowie sold was the present value of his personal intellectual property (song copyrights) – that is, the future expectation of future royalty income, less a discount,” said an analyst.

Those buying shares in Royalty Flow would have the right to collect dividends based on the performance of the Eminem catalog and any other catalogs acquired over time. The company says it intends to later list directly to the NASDAQ.

“The plan is to give fans and investors a way to share in the income from the royalties through dividends paid by the company,” reports Billboard.

The minimum investment during the IPO is $2,250 for 300 shares (at $7.50 a share). After the equity campaign is over, Royalty Flow “intends to list directly to NASDAQ and give latecomers a chance to invest in Royalty Flow stock through the public exchange.”

Royalty Flow was officially launched on November 27, 2017. The company, a subsidiary of Royalty Exchange, a copyright auction company. For more information about Royalty Flow, go here

For the Regulation A+ S.E.C. filing, go here.

Image source: royaltyflow.com

 

 

 

 

Music royalties – a siren song for niche investors seeking higher yield

A small but growing number of investors are buying the rights to musician’s future earnings, hoping to beat the fixed income returns and other markets.

According to an article in the Wall Street Journal, “Music Royalties Strike a Chord, these fixed income investors are lured by future returns of 8%-12% annually, when junk bonds are still hovering around 6%.

Private equity funds have raise or begun to raise $1 billion since 2013 when this sector appeared to be an alternative to low yields on fixed income.

There are a several types of royalties that can be sold, either for a specified period of time or until they expire. (For works created on or after January 1, 1978, it is life plus 70 years or 95 or 120 years, depending on the nature of authorship.)

David Bowie infamously sold his future copyright earnings for $55 million (“Bowie” Bonds), only to have new technology like Napster devalue them. [See, “The Bonds that Fell to Earth,” in the January 15, 2016 IP CloseUp.) The financing did wonders for Bowie balance sheet, although not all investors made out so well.

High Yield

Bowie Bonds paid 7.9% for ten years, at which time, I believe, they reverted back to the mercurial artist. He never lost ownership of all of his songs; he merely licensed the future earnings to some of them for a period of time.

Songs can also earn money when they are performed live, played in a restaurant or film, or streamed through a service like Spotify. They still do not make money from radio airplay (a legacy from old tech, when it was about selling records). Songwriters, music publishers, artists and labels own various rights, including performance rights.

WSJ reports that in the 2Q Denver-based website Royalty Exchange held music rights auctions valued at $2.5M, more than double the total from the 4Q 2016.  Royalty Exchange publishes a guide to music royalties, here.  It is a transaction site, so it is best to speak to a lawyer or experienced IP broker before buying.

Risk to music royalty streams includes timing, trends and technological threats. A song that generates a steady stream of income today is not necessarily going to in five or fifteen years. On the other hand, a small handful could actually generate more revenue than expected. Receivables, or royalty stream financing, takes place in many industries, including energy, real estate and sports.

Streaming Rises

The renewed interest in music royalties may due in part to increased royalty payments by services like Spotify, Pandora and Apple, which, similar to YouTube, have been notoriously reluctant to pay creatives fairly for content. But increases have been negligible for most performers and song writers, and top recording artists with leverage tend to cut their own distribution deals.

With disdain for IP rights on the rise, it is somewhat encouraging that niche investors still believe in the integrity of copyrights and the reliability of their income stream. For them to succeed they will need cooperation from streaming services, as well as songwriters and performers.

Image source: myradio360.com; entertainment.howstuffworks.com 

 

The bonds that fell to earth – The financial magic of David Bowie

The passing of David Bowie is a reminder that he was an innovator in finance and intellectual property, as well as music and fashion. 

Much has been written about the passing of David Bowie in New York at 69. It’s important to remember that he was a pioneer in music royalty securitization in 1997 with so-called”Bowie Bonds.”

00DavidBowieEsquireRussia1The bonds were a smart move for Bowie, who raised $55 million without giving up ownership of his prized catalog. He had gambled wisely on the future, and while the bonds traded poorly for investors —  a reflection of weakening demand in the music industry at the time — they never defaulted, paying holders in full at ten-year maturity.

First Mover

Bowie was a first mover, parlaying the future cash flow from his copyrighted song catalogue into an early payday just when the music industry was changing. The idea of royalty securitization remains viable today, if somewhat more sobering. As long as the financial modeling is right, and the appetite for risk sufficient, leading artists and innovators will continue to score with royalty deals.

In my 2001 book, From Ideas to Assets, Doug Elliott writes, “What Bowie sold was the present value of his personal intellectual property (song copyrights) – that is, the future expectation of future royalty income, less a discount (p. 462).”

“From 1991 to 1998 nearly $3.5 billion in Bowie-like royalty instruments were sold by other musicians (Rod Stewart), media conglomerates (Disney, Dreamworks, Universal), and branded marketers (Calvin Klein, Borden and GE Capital).”

The cash flows that comprised these securitizations were on a a whole far more reliable than the infamous mortgage-backed issues and CDOs that blew-up en masse and facilitated the 2008 bank melt-down. (See The Big Short, both the book and movie.)

Bowie told The New York Times in 2002 interview that copyright would no longer be viable in ten years and that music was likely to become a commodity “like running water or electricity.” He was not far off.

For a good Bloomberg story about Bowie’s foray into finance, go here. For the Wall Street Journal piece, go here.

Image source: gossipblog.it; vam.ac.uk

“Happy Birthday” is an orphan copyright, not yet public domain

U.S. District Judge George H. King’s ruling earlier this week means that “Happy Birthday to You” is now what’s known as an “orphan work” — a copyrighted work that’s so old that nobody knows who to pay in order to use it legally.

It is not necessarily in the public domain but may be by default.

As expertly reported in Law 360, nobody is sure who, if anyone, owns “Happy Birthday” if Warner Music doesn’t. Did the Hills [original owners] have heirs who could claim ownership? Did they have business partners who could have passed rights along?

“The ruling highlights a current issue that many in the copyright field complain about,” attorney Naomi Jane Gray said. “Copyright now lasts so long that it can be very difficult to find the author in order to even try to ask them for permission to legitimately use their work.”

$2 Million in Annual Royalties

“While it might come as a surprise to most that anybody claimed to ‘own’ the ubiquitous birthday song,” reported Law 360, “Warner/Chappell had for years been quietly doing just that, raking in an estimated $2 million a year in licensing fees from filmmakers and C9E3AA0F864-184002687952B1A0FF62741others.

“Warner/Chappell, the publishing unit of Warner Music Group, long claimed that it had inherited a 1935 copyright for the song from a company it purchased in 1988, but a group of filmmakers and artists who paid those licensing fees challenged that claim in court in 2013. They said they’d found new documentary evidence that cast doubt on Warner’s claim and that they wanted their money back.

“On Tuesday, they won big. A California federal judge ruled that Warner’s predecessor company — Summy Co., which purportedly acquired the rights from the song’s original authors — had only acquired the rights to the song’s melody, which had long since passed into the public domain.”

As for the lyrics? There was no proof that Summy had ever actually acquired them, meaning Warner never owned them either.

For the full analysis go here.

Image source: http://www.ohmygoodness.com


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